BB 2010-04-09 General Agreement on Trade in Services - Part 14

General Agreement on Trade in Services

Part 14: Service Sector - Environmental Services

Introduction

Environmental services are primarily provided by governments and normally considered to be either public goods (e.g. road cleaning, garbage collection etc.) or natural monopolies (e.g. water and sewage services etc.). Historically there was little if any private participation in these types of services and virtually no trade across borders. However, this has changed in many countries. For a variety of policy reasons governments have begun to allow privately owned companies to deliver services on their behalf.

Governments have started to open markets for environmental services, permitting private operators to bid on contracts. Even where monopolistic market structures cannot be avoided, regulated private ownership is appearing. Trade in environmental services is a growing sector due in part to the increased awareness and concern for the world in which we live and the change in national policies. Another area of growing importance is environmental services provided between businesses (B-2-B). There is an increasing number of small and medium sized enterprises either supplying or using environmental consultancies and/or sub-consultancy services. These can be found in most service sectors.

According to an OEDC study (COM/TD/ENV(2000)86/FINAL) three factors have contributed toward the emergence of international markets for environmental services. First, increased trade in environmental-related equipment and technology, involving associated services to establish or upgrade industrial and public infrastructure plants, particularly in relation to water treatment, waste management and air pollution abatement.

Second, is “the adoption of world-wide environmental standards, which can generate growth in international environmental goods and services markets (e.g. as demonstrated by the Montreal Protocol in respect of CFC replacement strategies). Third, the decision by many countries to begin privatising public utilities and removing monopoly operators in order to generate foreign investment and market competition.” Consolidation among private operators and the increasing global reach of large engineering firms has also impacted the level of international trade in these services.Economic ValueIt was estimated that in 1996, the global environment market was approximately US$453 billion, of which the services segment accounted for just over US$229 billion. Solid waste management was estimated to be US$102 billion and water treatment services US$65 billion.

In 2002 the sector (goods and services) had grown by over 15 per cent to an estimated value of around US$563 billion, of which 65 per cent was attributed to services. Unchanged from the 1990s are the leading exporters: the US (39 per cent), the EC (29 per cent) and Japan (16 per cent). Africa, Asia and Latin America combined represent only 9 per cent of the market (source: WTO secretariat).

Services covered

Definition and Classification In the Services Sectoral Classification List (MTN.GNS/W/120) developed during the Uruguay Round, and largely based on the United Nations Central Product Classification (UNCPC, or CPC), the environmental services sector includes: a) sewage services (CPC 9401); b) refuse disposal services (CPC 9402); c) sanitation and similar services (CPC 9403); and d) other environmental services.

Even though the “other” category does not explicitly refer to any UNCPC items, it could be read to include the remaining elements of the CPC environmental services category: a) cleaning of exhaust gases (CPC 9404); b) noise abatement services (CPC 9405); c) nature and landscape protection services (CPC 9406) and;d) other environmental protection services not included elsewhere (CPC 9409).

It should also be noted that many other services are directly relevant for the provision of environmental services (e.g. architectural services or construction and engineering). This should be kept in mind, when reading a Member’s schedule.

Modes of supply

It can be difficult to isolate environmental services trade since they are frequently traded as a component of other services such as: engineering, construction, distribution, and transport. In addition to the sub-sectors listed, each of these types of services can have an environmental component in any of the four modes of supply.Cross-border supply (Mode 1) occurs through the transmission of faxes, mail or via the Internet. Although most of the services listed in W/120 might not have been technically feasible prior to wide-spread usage of the Internet and access to real time communication, today it would be possible. For example, consulting contracts for sewage or sanitation assessments could be delivered through this mode of supply. Such services could also be linked to architectural or engineering specifications during the planning and design phase.

An example of consumption abroad (Mode 2), where the service is purchased outside of the home territory, could be waste and refuse disposal in another country. In this sector, and for this mode, when commitments are made there are few if any limitations. Nevertheless, it is possible to see that Members add “Unbound due to lack of technical feasibility” as a side note.

Mode 3 is the most important mode of supply for this sector. Commercial presence, refers to the establishment of a juridical person in the country, which will operate according to local requirements of the government (at all levels of government).

Presence of natural persons (mode 4), like in other sectors is normally left unbound, except as listed in the horizontal section.

Regulatory issues

Regulations in the environmental services sector varies greatly among WTO Members. This sector is politically sensitive due to being perceived by many as a public good that has been and should continue to be provided by governments. However, the reality in many countries is quite different. According to a report by UNCTAD, some developing countries have been able to build up a solid environmental services sector while others continue to lack effective regulatory frameworks, which results in inequitable and inefficient provision of these services.

The UNCTAD report notes that for viable trade in environmental services in developing countries it is critical to have a number of elements in place. Among other things it includes, “…political willingness and leadership, appropriate environmental legislation and enforcement, … cooperation between the Government and the private sector, and a participative decision-making process (UNCTAD, Zarrilli, p 292 ).” However, in many developing countries these elements are either lacking or non-existent, making trade difficult.

Restrictions on government procurementGovernment procurement of services is not subject to the MFN obligation nor to specific commitments (Art. XIII). The GATS exclusion aside and depending on national regulations, it could be possible for a foreign company, with a subsidiary in the country concerned, to qualify to bid on government contracts.

Common limitationsBelow is a short list, roughly categorised by mode, of possible impediments one might encounter in this sector. The list is intended to be illustrative only and not exhaustive. Mode 1- Requirements to obtain authorisation, licences, or permits in order to market and supply services.- Establishment of commercial presence required.- Commercial presence in country required and granted only to specified “brand-name” entities.

Mode 2- Permitted only through a designated local partner to maintain a supply advantage for permitted local providers.- Consumer is required to use a monopoly or otherwise specified facility.

Mode 3- Limitations on foreign capital participation and/or on the type of legal entity.- Existence of monopoly or exclusive provider.

Mode 4- Limitations on the categories of personnel permitted with generally applicable time-limits and/or conditions not specified, such that these may be arbitrarily or discriminatorily applied.- Requirements to complete or undertake further training in the host country in order to be recognised as a specialist.

Scheduling issues

What you will find in GATS Schedules.

Environmental services is one of the least committed sectors and remains politically sensitive. When commitments are made, modes 1 and 2 are subject to very few limitations other than what is listed in the horizontal section.

The Members that have made commitments on environmental services have listed very few limitations for mode 3 (commercial presence), notwithstanding limitations listed by each Member in the horizontal section. While most have listed “none”, the types of limitations in the schedules relate to operating licence requirements, limitations on foreign capital participation and form of legal entity. In one schedule a limitation has been made on the number of suppliers that are permitted. In most of the schedules, mode 4 supply (movement of natural persons) remains very restricted. Commitments are defined in the horizontal section and apply to all the sectors listed, including environmental services. In this sector only two Members have made a full commitment of “none”, the rest are “unbound", except as indicated in the horizontal section.